GST - Valuation

 GST - Valuation

Under GST law as per sec 15 CGST Act taxable value is the transaction value i.e. price actually paid or payable, provided the supplier and the recipient are not related and price is the sole consideration

Compulsory Inclusions 

Any taxes, fees, charges levied under any law other than GST law, ex¬penses incurred by the recipient on behalf of the supplier, incidental ex¬penses like commission & packing incurred by the supplier, interest or late fees or penalty for delayed payment and direct subsidies (except government subsidies) are also to be added to the price (if not already added) to arrive at the taxable value.

Exclusions

Discounts like trade discount, quantity discount etc. are part of the nor-mal trade and commerce, therefore pre-supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while deter-mining the taxable value. 

Discounts provided after the supply can also be excluded while deter-mining the taxable value provided two conditions are met namely: 

(a) discount is established in terms of a pre-supply agreement between the supplier and the recipient, and such discount is linked to relevant invoices and 

(b) input tax credit attributable to the discounts is reversed by the recipient. 

Two Circulars namely Circular No. 92/11/2019-GST dated 07.03.2019 and Circular No. 105/24/2019-GST dated 28.06.2019 have been issued to clarify various aspects of exclusions or otherwise of discount from the value to arrive at the taxable value.

Taxable value when consideration is not solely in money (Rule 27 of CGST Rules) 

In some cases, where consideration for a transaction is not solely in mon¬ey, taxable value has to be determined as per prescribed Valuation Rule. In such cases following values have to be taken sequentially to deter¬mine the taxable value: 

i. Open Market Value of such supply. 

ii. Total money value of the supply i.e., monetary consideration plus money value of the non-monetary consideration. 

iii. Value of supply of like kind and quality. 

iv. Value of supply based on cost i.e., cost of supply plus 10% mark-up.

v. Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method) 

Open Market Value means the full value of money excluding taxes under GST laws, payable by a person to obtain such supply at the time when supply being valued is made, provided such supply is between unrelated persons and price is the sole consideration for such supply. 

Supply of like kind & quality means any other supply made under similar circumstances, is same or closely resembles in respect of characteristics, quality, quantity, functionality, reputation to the supply being valued. 

Illustration: 

(1) Where a new phone is supplied for Rs.20000/- along with the ex¬change of an old phone and if the price of the new phone without exchange is Rs.24000/-, the open market value of the new phone is Rs. 24000/-. 

(2) Where a laptop is supplied for Rs.40000/- along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.4000/- but the open mar-ket value of the laptop is not known, the value of the supply of lap¬top is Rs.44000/-. 

Value of supply between distinct or related persons (excluding Agents) (Rule 28 of CGST Rules). 

A person who is under influence of another person is called a related per¬son like members of the same family or subsidiaries of a group company etc. The term “person” also includes legal persons. 

Under GST law, following persons have been deemed as related persons. 

(i) such persons are officers or directors of one another’s businesses. 

(ii) such persons are legally recognised partners in business. 

(iii) such persons are employer and employee. 

(iv) any person directly or indirectly owns, controls, or holds 25% or more 

of the outstanding voting stock or shares of both of them. 

(v) one of them directly or indirectly controls the other.

(vi) both of them are directly or indirectly controlled by a third person; 

(vii) together they directly or indirectly control a third person; or 

(viii) they are members of the same family. 

Further, persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, how¬soever described, of the other, are also deemed to be related. 

Above categories of related persons have been specified and as relation may influence the price between two related persons therefore a Special Valuation Rule has been framed to arrive at the taxable value of transac¬tions between distinct or related persons. In such cases following values have to be taken sequentially to determine the taxable value: 

i. Open Market Value. 

ii. Value of supply of like kind and quality. 

iii. Value of supply based on cost i.e., cost of supply plus 10% mark-up. 

iv. Value of supply determined by using reasonable means consistent. 

with principles & general provisions of GST law. (Best Judgement method)

 

However, where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a relat¬ed person. Further, if the recipient is eligible for full input tax credit, the invoice value is deemed as open market value and is accepted as taxable value.

Questions?

Value of Supply in case of lottery

Value of Supply in case of betting, gambling, and horse racing

Determination of value in respect of seven specific supplies

(a) Purchase or sale of foreign currency including money changing. 

(b) Booking of tickets for air travel by an air travel agent. 

(c) Life insurance business. 

(d) Value of supply of Second-hand goods. 

(e) Value of redeemable vouchers/Stamps/Coupons/tokens. 

(f) Value in case of notified supplier of services. 

(g) Value of supplies where Kerala Flood Cess is applicable